Pages

Monday, 20 June 2016

3 Easy Steps to Support Cost Reduction Efforts

Managing costs with limited resources poses a
particularly difficult challenge to corporate procurement leaders. The more
resource-constrained a procurement department, the more likely it is that the
overall business may be sensitive to cost. However, a lack of procurement
resources can make it even more difficult to achieve tangible cost savings,
given shrinking buying power, inability to invest in spend analytics, or for
other reasons.

Here are three suggestions to help those who find
themselves in such circumstances:

1. Build Trust with
Non-Procurement Peers

As a first step in optimizing spend, procurement
executives need to understand where their peers throughout the business are
spending money, what kinds of contracts exist, and what future spending is
anticipated. To achieve this, procurement leaders need help from their peer
executives in other departments.

However, those peers understandably may be leery
of providing information or support to procurement, out of fear of losing
control over relationships with suppliers or sabotaging the quality of
necessary products or services. To overcome these fears, procurement leaders need
to find a way to build relationships of trust with their executive colleagues
outside of procurement.

As a procurement executive seeking to build such
relationships, begin by taking the time to understand the functions of other
departments, and communicating your interest in making life easier and more
efficient, rather than flagging a one-dimensional cost-reduction mission. Ask
for pain points, including what makes your peers’ lives most difficult, rather
than focusing purely on achieving cost savings. If you focus on learning about
the work of your peers, and seek to ease the procurement experience, the
savings will come.

Building productive relationships across multiple
business units often provides another significant benefit. Once you have a
strong rapport with peers throughout the company, it is increasingly likely
that you will gain insight into potential economies that were not otherwise
obvious to you. By digging deeper into the various categories of spend within
multiple departments, you will inevitably find opportunities to group spend or
other efficiencies that can boost your buying power.

2. Gain C-Suite Support

Another critical method for achieving cost
savings is gaining buy-in from the top. Even if you cannot achieve greater
investment for procurement from the CEO or other C-suite colleagues, your
company’s top brass can help you centralize spend by holding other corporate
executives to new procurement requirements that give you more control.

Spending limits and related protocols designed to
reduce cost may be good in theory, but they may be ineffective without the
means to hold decision makers accountable. By gaining support from the C-suite
to enforce critical procurement rules, you will be much more likely to achieve
your cost-reduction objectives. Just be sure to follow-through on your own
obligations—including deadlines for reviewing draft contracts and other
guarantees that you may make to other executives about the work of
procurement—or you may lose that valuable CEO support.

3. Tap Expertise from
External Partners

Finally, when you run out of opportunities to
leverage your own spend or recognize internal efficiency, consider finding
external partners to help, including purchasing cooperatives and even existing
suppliers.

In some cases, such entities may have much higher
spend than your business, which they can leverage to achieve better results for
you—even if supporting your spend in such ways may not officially be part of
their charge.

Good external partners who value your relationship
may be willing drive more value for you, including by giving you access to
benefits they have negotiated on their own behalf—for example, free shipping,
better payment terms, or simply lower costs for goods and services you may
need.

Building Relationships

A lack of resources can be a major source of
frustration for procurement executives, adding greater difficulty to an already
challenging arena. However, by leveraging internal and external relationships
creatively, today’s procurement leaders may have more opportunities for cost
savings than they realize.